Doctor Copper Becomes Doctor Plopper

What economic phenomenon is most worrisome to Dr. Ben Bernanke? To view
a picture of the answer, please click
here now.

A higher oil price is Dr. Bernanke's biggest fear, and I believe a new
move higher is beginning right now.

David "SuperDave" Greenlaw is Morgan Stanley's chief U.S. fixed
income strategist. A number of Morgan Stanley's top economists, including
SuperDave, have issued substantial warnings that the American economy faces
what they term a "fiscal cliff" in 2013.

There is talk of dividend tax hikes, the end of the Bush tax cut extensions,
and it's conceivable that both individuals and American corporations could
enter the year 2013 with no idea what their tax rates will be for the
year.

How much fiscal tightening are you facing in 2013? Well, Dave argues that
the total amount of fiscal tightening will not be the "3.5% of GDP" number
bandied about by many respected economists and by the congressional budget
office.

He feels the American economy is facing a 5% hammer that will send
America back into recession in 2013.

I agree, because if the Dow Jones Industrial Average had a chief economist,
it would be "Doctor Copper". The weekly chart of copper looks like
a train wreck waiting to happen.

In my view, this chart "technically certifies" the superb fundamental
analysis produced by SuperDave, who says, "Under current law, the US
economy will experience a fiscal tightening of unprecedented magnitude
at the end of this year." If you like horror movies, you'll love this
copper chart. To view Dr. Copper's horrifying forecast for the economy
of America, please click
here now.

That head and shoulders top pattern is ominous. Sadly, I think
that for the intermediate term, Doctor Copper, both fundamentally and technically,
is about to become Doctor Plopper.

The last time that the U.S. economy faced a fiscal tightening almost as
big as what appears to be your coming 2012 Christmas present was in 1969, and
America didn't rise from those ashes until the 1980s.

Quite frankly, if the price of oil skyrockets, I don't think SuperDave
will want to imagine the magnitude of the American recession that
he could be forecasting.

Probably the single most important question to be asked if the economy
goes into severe recession in 2013 is; what are the ramifications of a
new recession for the existing mountain of OTC derivative contracts? They
look like a minefield of financial nuclear weapons with hair trigger detonation
switches.

New OTC derivatives are cleared through professional clearing houses,
but there are hundreds of trillions of existing OTC derivatives baggage
that are cleared nowhere, and it's unknown what happens if a new
recession occurs.

The Dow has hesitated here, but it has not fallen. Please click
here now. There's a small head and shoulders top pattern that is
forming, but note the position of the Stochastics oscillator and the
MACD indicator.

They are both verging on crossover buy signals, telling you that the
Dow could surge to a new high just as easily as it could break below
12,700.

How the Dow, and gold, move from here is likely to be determined by the
action of the US Treasury bond. Please click
here now. Note the small wedge pattern that I have highlighted.

Many technicians thought the bond market would decline strongly from the
139 price area. From there, a small decline took the bond down to the 136
area. The bond could have fallen further, but instead a substantial rally
occurred, shocking the bears.

Look at the Stochastics indicator now. It's rolling over, but it's unknown
what happens if the bond itself rolls over at this point in time and price,
because the market sits in "analysis quagmire".

After months of reports that showed an improving economy, the latest jobs
report shredded the view that everything is fine, and happy times are here
because it is an election year. Still, there simply hasn't been enough
data released to convince institutional money managers that the recovery
has died.

When the bond first broke down, money managers believed it was because
the economic news was so good that no further credit easing was required.

Now, they are less sure but not yet convinced that the recovery is dying.

Gold has been tracking the bond price. Please click
here now. Gold seems to be attempting to establish a new uptrend,
which I've highlighted with two trend line arrows.

My main concern is that I think most investors in the gold community are
looking at the "super-wedge" pattern on the gold chart as something that
will produce a violent move to the upside.

A vertical move could occur, but I think the most likely scenario is a "steady
as she goes" plodding type of move towards $1800. Gold is your beacon of
light in a crisis of darkness, but I still believe there are too many gamblers
rushing to buy a perceived "breakout" each time gold moves higher to allow
for that type of vertical move. If you are always long gold, and
I always am, you will benefit from any vertical move, but I would suggest
the focus should be away from a vertical move and towards the slow but
growing buy programs of central banks that will support gold on price weakness,
and ultimately revalue it thousands of dollars higher!

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Written between 4am-7am. 5-6 issues per week. Emailed at aprox 8-9am daily.

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the
Graceland Updates daily between 4am-7am. They are sent out around 8am-9am.
The newsletter is attractively priced and the format is a unique numbered point
form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided
by Stewart and Graceland Updates is for general information purposes only.
Before taking any action on any investment, it is imperative that you consult
with multiple properly licensed, experienced and qualifed investment advisors
and get numerous opinions before taking any action. Your minimum risk on
any investment in the world is: 100% loss of all your money. You may be taking
or preparing to take leveraged positions in investments and not know it,
exposing yourself to unlimited risks. This is highly concerning if you are
an investor in any derivatives products. There is an approx $700 trillion
OTC Derivatives Iceberg with a tiny portion written off officially. The bottom
line: